Our Common Future Under Climate Change

International Scientific Conference 7-10 JULY 2015 Paris, France

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Thursday 9 July - 14:30-16:00 UNESCO Fontenoy - ROOM II

4406 (a) - Climate, Sustainable Development and Energy Security

Parallel Session

Chair(s): J.C. Hourcade (International Research Center on Environment and Development (CIRED), Paris, France), P.R. Shukla (Indian Institute of Management, Ahmedabad, India)

14:30

Energy and Climate Challenges: The case of India

P.R. Shukla (Indian Institute of Management, Ahmedabad, India)

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Energy and Climate Challenges: The case of India
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14:40

Energy and Development in Emerging Countries: Examples drawn from China

J.M. Reilly (Massachusetts Institute of Technology, Cambridge, Ma, United States of America)

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Energy and Development in Emerging Countries: Examples drawn from China
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14:50

Nexus of climate mitigation and key development objectives - An analysis for South Africa

J. Schers (CIRED, Nogent sur Marne, France), F. Lecocq (Centre International de Recherche sur l'Environnement et le Développement, Nogent sur Marne, France), F. Ghersi (Centre International de Recherche sur l'Environnement et le Développement, Nogent sur Marne, France)

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Nexus of climate mitigation and key development objectives - An analysis for South Africa

J. Schers (1) ; F. Lecocq (2) ; F. Ghersi (2)
(1) CIRED, Nogent sur Marne, France; (2) Centre International de Recherche sur l'Environnement et le Développement, Nogent sur Marne, France

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South Africa is a rapidly growing middle-income economy with a coal-based energy system that generates high greenhouse gases emissions, on par with the richest economies in the World. The country has pledged to significantly reduce its emissions (by 34% in 2020 and by 42% in 2025 relative to business-as-usual, under the condition of finance and technical support from the international community). It is actively discussing policies to achieve this goal, including a carbon tax.

Yet, climate mitigation is not the only challenge that South Africa faces. Despite significant progress in overcoming the inequalities inherited from the Apartheid era and in improving quality of life since the onset of the democratic regime in 1994, economic growth has slowed down in recent years, poverty remains high and large inequalities persist. In particular, the South African economy is still experiencing very high unemployment, in particular amongst low-skill individuals, while there is shortage of high-skill workers.

The present paper aims to provide some insights on the nexus between South Africa's mitigation objectives and the key development challenges outlined above. It focuses in particular on economic growth and unemployment, in the context of inequality and education. For this purpose we developed IMACLIM-SA a dynamic, computable general equilibrium of the South African economy. IMACLIM-SA represents the South African economy as a small, opened economy with ten sectors (five energy, five non-energy) and five household classes. Calibrated on 2005 data, the model produces an equilibrium of the economy in 2035 based on assumptions about change in key parameters.

Particular attention is paid to the input data, with the production of a revised social accounting matrix to match monetary flows drawn from macroeconomic statistics and energy flows drawn from energy tables. The model also captures differences in the prices of goods and services (notably energy) between firms, households, the public sector and exports. We use outcomes of runs of the SA TIMES model of the Energy Research Center of the University of Cape Town to inform changes in electricity production in IMACLIM-SA. Particular attention is given to the labour market, in terms of supply—with three skill classes—, labour demand in production and market functioning and imperfections.

In the reference scenario, given our assumptions, GDP grows at an average rate of 3.4% per year, and GDP per capita more than doubles over the period. It must be noted that to generate such level of growth in the baseline, we must assume not only capital and labour productivity improvements, but also an increase in international prices relative to domestic ones, thus improving competitiveness of South African products on the export market. Unemployment decreases markedly, though it remains important in 2035, and shortage of high-skill labour persists. In the reference projection, emissions increase substantially, despite implementation of the Updated Integrated Resource Plan of 2013.

We then explore seven policy packages based on the imposing a carbon tax of 100 Rand (ZAR 2005) per tonne of CO2 with different recycling schemes. We find that CO2 emissions in South Africa are sensitive to even a relatively “small” carbon tax by international standards, though it is high relative to 2005 domestic prices of energy. A R300/tCO2 carbon tax might help achieve the country's pledges. This is consistent with prior literature on mitigation in South Africa. Impacts on GDP growth and on unemployment reduction can be significant, with total GDP in 2035 at 2.5% to 15% lower for a R300/tCO2 carbon tax, but strongly depend on the revenue recycling mechanism.

Amongst the recycling options we test, using carbon tax proceeds to reduce a sales tax results in GDP growth on par with the reference projection, plus in a higher level of employment, while CO2 emissions decrease. Using carbon tax proceeds for lump-sum transfers to households underperforms the reference in terms of GDP and employment, but achieves a strong reduction of inequality. Using part of the proceeds to invest in education results in accelerated growth, reduced employment and lower emissions—but this result depends on assumptions concerning the impact of additional investment in education, namely a joint increase in growth of labour and capital productivity relative to the reference projection.

15:00

A Dynamic General Equilibrium Assessment of the Energy-Climate-Development Link in Mexico

F.-X. Bellocq (Agence Française de Développement (AFD), Paris, France), F. Grazi (Agence Française de Développement (AFD), Paris, France), I. Islas Cortes (National Institute of Ecology and Climate Change, Mexico City, Mexico), G. Landa (OFCE, Paris, France), F. Reynès (TNO, Delft, Netherlands)

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A Dynamic General Equilibrium Assessment of the Energy-Climate-Development Link in Mexico

FX. Bellocq (1) ; F. Grazi (2) ; I. Islas Cortes (3) ; G. Landa (4) ; F. Reynès (5)
(1) Agence Française de Développement (AFD), Paris, France; (2) Agence Française de Développement (AFD), Research Department, Paris, France; (3) National Institute of Ecology and Climate Change, Directorate for sectoral policy, Mexico City, Mexico; (4) OFCE, Paris, France; (5) TNO, Delft, Netherlands

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This paper offers an empirical application of the notion of energy transition to the Mexican economy and takes the next step of simulating medium- and long-term impacts of proposed and future energy policy on the environment and the Mexican economy. The starting point of the analysis comes from ThreeMe framework, a Multi-sectoral Macroeconomic Model for the Evaluation of Environmental and Energy policy, which is motivated by neo-Keynesian theory. It is designed to address dynamics of global economic activity, energy system development and carbon emissions causing climate change. The ThreeMe model is well suited for policy assessment purposes in the context of developing economies as it informs the transitional effects of policy intervention. In particular, disequilibrium can arise in the form of involuntary unemployment, inertia of technical systems and rigidity of labor and energy markets, as a result of delayed market-clearing in the goods markets and slow adjustment between prices and quantities over the simulation time path.

Calibrated to updated aggregate and sectoral national accounts data, a Mexican version of the ThreeMe is developed that accounts for 24 commodities-including 3 energy sources-and 32 sectors, with an explicit distinction between 11 energy sectors and 7 transport sectors. Electricity production is disaggregated into 9 technologies: hydro, geothermal, wind, solar, biomass, nuclear, coal-based, oil-based and gas-based. The ThreeMe-Mexico model is used to gauge the economic and environmental effects of energy fiscal policy measures in Mexico (namely the phasing out of energy subsidies and the implementation of a carbon tax). Different policy scenarios are assessed, each reflecting a different strategy of fiscal revenue recycling. We consider fiscal policy for energy transition in Mexico of the type of carbon tax and simulate the effects on Mexico’s economy and carbon emissions of alternative government’s patterns of transferring tax revenues. The level of the carbon tax is endogenously computed to meet national emissions reduction targets, as stated in the Mexican “Climate Change Law”. In line with government’s “IDEAL scenario”, we consider emissions cuts of 40% in 2030 50% in 2050 as compared with the baseline and the 2000 levels, respectively. This requires carbon tax to reach US$ 100 in 2030 and US$ 867 in 2050. We take the case with no tax compensation for the first. Because of substitution effects in energy-intensive production inputs and consumption goods, the policy is successful in reducing CO2 emissions by more than 80% by 2050 with respect to BAU. But the environmental goal is achieved at very high economic costs, with GDP dropping by more than 10% after 2040.

Then we test the hypothesis of full redistribution of carbon tax revenues among consumers (through reducing household income taxes) and producers (through compensating for social security payroll taxes), which appears as a way to reconcile environmental and economic goals. It is shown that such pattern of revenue transfer has beneficial impacts both on GDP and CO2 emissions reduction. With respect to the no-redistribution pattern scenario gains on latter feature slightly lower (75% vs 80% decrease in emissions, respectively) because of rebound effects: increased economic activity from redistribution leads to enhanced production and consumption, which ultimately drive energy use. Our results support the notion that promoting a carbon tax is compatible with both environmental and economic gains. Sensitivity tests are undertaken including utilizing alternative parameter values for the alternative substitution mechanisms. It is found that CO2 emissions reduction is low when the elasticity of substitution between capital and energy is constant (in absence of endogenous energy efficiency) and when the elasticity of substitution across types of commodities is low. Moreover, the economic gains from the tax crucially depend on the inflationary pressure resulting from the taxation policy (and therefore on the wage setting process) and on responsiveness of Mexico’s economy to foreign competition.

This paper is the result of a two-year research collaboration involving the National Institute of Ecology and Climate Change (INECC) the French Economic Observatory (OFCE) and the French Agency for Development (AFD). 

15:10

A conceptual framework for the quantification of co-benefits

D. Urge-Vorsatz (Center for Climate Change and Sustainable Energy Policy (3CSEP), Budapest, Hungary)

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A conceptual framework for the quantification of co-benefits
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15:20

The Interaction of Climate Mitigation and Universal Energy Access Policies

S. Pachauri (International Institute for Applied Systems Analysis, Laxenburg, Austria), N. Rao (IIASA, Laxenburg, Austria), K. Riahi (International Institute for Applied Systems Analysis, Laxenburg, Lower Austria, Austria)

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The Interaction of Climate Mitigation and Universal Energy Access Policies

S. Pachauri (1) ; N. Rao (2) ; K. Riahi (3)
(1) International Institute for Applied Systems Analysis, Laxenburg, Austria; (2) IIASA, Energy, Laxenburg, Austria; (3) International Institute for Applied Systems Analysis, Energy Program, Laxenburg, Lower Austria, Austria

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This paper is intended for Session 4406 (a): Reilly/Shukla (organizers)

 

The vast majority of scenarios assessed in the IPCC’s AR5 focus attention on mitigating greenhouse gas emissions, but fail to sufficiently analyze some of the critical linkages between climate and development (IPCC, 2014b). One of these linkages is the risk that higher energy prices from mitigation policies exacerbate energy poverty, which can in turn increase mortality from indoor air pollution. Four million lives are lost every year from traditional stove use (Pachauri et al, 2013). In India alone, over 700 million people still depend on solid fuels for cooking, whose eradication is an important development objective. With increasing pressure from the international community to undertake mitigation efforts, including removing fuel subsidies, the risk of slowing modern energy uptake is real.

No studies have examined the interaction between policies to promote (fossil-based) modern energy access for cooking and climate mitigation policies. The distributional outcomes depend on existing subsidy policies, patterns of income growth, and the types of climate policies. This paper presents a rigorous assessment of these issues using the MESSAGE-Access model, a household fuel choice model that is part of the MESSAGE integrated assessment model at IIASA. The regional focus of this paper is South Asia. The paper will present outcomes of solid fuel dependence, income shocks, policy costs and environmental impact under different climate and access policies.

 

References:

IPCC, 2014b: Climate Change 2014: Impacts, Adaptation, and Vulnerability. Part A: Global and Sectoral Aspects. Contribution of Working Group II to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change [(eds.)]. Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA

Pachauri, Shonali, et al. "Pathways to achieve universal household access to modern energy by 2030." Environmental Research Letters 8.2 (2013): 024015.

15:30

Discussion

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Discussion
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